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By Attorney Richard Stim

Intellectual property infringement will be treated like a
crime and may result in jail time in several instances; criminal
copyright infringement, trademark counterfeiting, counterfeiting of labels for copyrighted works, and theft of trade secrets.

Civil v. Criminal

The theft (or ‘infringement’) of a patent, copyright,
trademark or trade secret (collectively known as intellectual property) is
typically handled as a civil matter. That is, the owner sues the infringer and
attempts to collect financial damages and to have the infringing material
removed or destroyed. The infringer is liable for the damages and must follow
court orders. Civil suits never result in jail time unless one of the party
disregards a court order, is found to be in contempt, and must serve some time
in confinement as punishment - typically
a few days. When intellectual property infringement is classified as a crime,
the federal government (or occasionally the state government in the case of
trade secrets), will pursue the
infringer who, if found guilty, may be sentenced to jail time.

Criminal Copyright Infringement

Infringement of a copyright can be treated as a federal
crime under the Copyright Act (17 U.S.C. § 506(a)) if it is
done intentionally and with full knowledge that an infringement is occurring.
As a practical matter, the U.S. Department of Justice only brings criminal
charges against copyright infringers when a large amount of money is at stake
and the purpose of the infringement is commercial gain. The Family Entertainment and Copyright Act of 2005 made it a
crime to videotape or transmit video signals from inside a movie theater, and
to knowingly place a copyrighted computer program, musical work, motion picture
or other audiovisual work or sound recording on a computer network accessible
to the public for purposes of copying.

An infringer who
commits one or more infringements during a 180-day period for “purposes of
commercial advantage or private financial gain” can be fined and imprisoned for
one to five years depending upon the value of the infringements. Repeat
violations can result in fines and imprisonment for up to ten years. Regardless of whether there is financial gain, an infringer
may be liable for fines and up to three years in jail if the infringement is
ten or more copies of one or more copyrighted works that have a total retail
value of $2,500. Repeat offenders may be liable for jail time of up to six
years.

The government will also prosecute anyone who knowingly and
willfully aids in a criminal infringement. The government will not prosecute
innocent infringers, that is, persons who had a good faith reason to believe
that copying was permitted, although those persons can still be subject to a
civil law suit. Willful violators (and those who do it for purposes of
financial gain) of the Digital Millennium Copyright Act may be subject to fines
of not more than $500,000 or imprisonment for not more than five years, or
both, for the first offense, and fines of not more than $1,000,000 or
imprisonment for not more than ten years, or both, for any subsequent offense.

Counterfeits (Trademark)

The crime of counterfeiting (18 U.S.C. § 2320) is the act of making or selling lookalike
goods or services bearing fake trademarks, for example, a business deliberately
duplicating the Nike trademark on shoes. Likelihood of confusion -– the
standard for trademark infringement - is obvious in counterfeiting, because the
counterfeiter’s primary purpose is to confuse or dupe consumers. Even when a
buyer knows that the product is a fake, the business is still liable for
counterfeiting, because the product can still be used to deceive others.
Counterfeiting is not limited to consumer products such as watches and
handbags. A website that copied the Playboy Bunny logo for adult sex
subscription services was assessed $10,000 for trademark counterfeiting. (Playboy Enterprises Inc. v. Universal
Tel-A-Talk Inc (1999).) Proving infringement is easier when dealing with
counterfeits because there is usually no need to conduct a factor-by-factor
analysis of likelihood of confusion. In a case involving two merchandising
companies, the district court ruled that by their very nature, counterfeit
goods cause confusion. (Bravado International Group Merchandising Services v.
Ninna, Inc. (2008)). An offer to sell counterfeit products can also trigger
liability as a counterfeiter. For example, an individual offered to sell
counterfeit jeans and provided a sample to an undercover police officer. Proof
of actual production or sale of the jeans was not necessary to prove
counterfeiting. Similarly, an Internet Service Provider (ISP) that hosted
several websites selling fake Louis Vuitton merchandise could be liable for
contributory infringement. The district court likened the ISPs in this case to
the proprietor of the flea market found liable for contributory infringement.
(Louis Vuitton Malletier v. Akanoc Solutions, 591 F.Supp.2d 1098 (N.D. Cal.
2008)). If convicted, a defendant can be sentenced for up to 10 years in prison (or up to 20 years if their are multiple convictions under this law) and may have to pay fines up to $5 million.

Counterfeit Labeling (Copyrighted Works)

There is an additional crime of counterfeiting that occurs when someone creates counterfeit labels for copyrighted works such as movies, records, artwork, books and software programs. Under the law (set out at 18
U.S.C. § 2318), a defendant can be sentenced for up to five years if found guilty of knowingly trafficking in and using illicit labels on counterfeit copyrighted works.

Trade Secret Theft

Several states and the federal government have passed laws
that make the unauthorized disclosure, theft, or use of a trade secret a crime.
Under these laws the government, not private businesses, arrests the
perpetrators and brings criminal charges. The penalties—including
imprisonment—can be much more severe than in a civil suit. For example, a
person convicted of violating the federal Economic Espionage Act of 1996 can be
imprisoned up to ten years.

The filing of a criminal case does not prevent the trade
secret owner from filing a civil lawsuit based on the same issues. Criminal prosecutions of trade secret theft are rare because
many businesses prefer not to bring law enforcement officials into the fray.
Also, in some cases, law enforcement officials don’t wish to prosecute because
there may not be sufficient evidence to obtain a conviction. Keep in mind that
the standards of proof for criminal cases are higher than for civil battles.

Although state criminal laws affecting trade secrets differ
from state to state, the typical law applies to anybody who intentionally:

physically
takes records or articles reflecting the trade secret

copies or
photographs such records or articles

assists in
either of these acts, or

discloses
the trade secret to another after having received knowledge of the secret in
the course of a confidential employment relationship.